1. SKC Q2 Earnings: What Happened?
SKC reported revenue of KRW 467.2 billion (+6% YoY), an operating loss of KRW 70.1 billion (continued loss, narrower than expected), and a net profit of KRW -3.9 billion (turnaround to profit). While the above-expectation revenue and net profit turnaround are positive, the continued operating loss is a concern.
2. Drivers of Performance: Why These Results?
Positive Factors:
- Growth in battery materials business: Increasing demand for copper foil due to expanding EV/ESS market driving SK Nexilis’ growth
- Entry into the semiconductor materials market: Acquisition of ISC facilitates entry into the semiconductor back-end process market, securing new growth engines
- Strengthened ESG management: Investment in eco-friendly materials enhances corporate value
Negative Factors:
- Sluggish chemical business: Impacting overall performance
- Investment in new growth drivers: Large-scale investment adding to short-term financial burden
- High debt-to-equity ratio: 188% as of half-year, raising financial stability concerns
- Macroeconomic uncertainty: Potential for deteriorated profitability due to rising interest rates, exchange rate fluctuations, and raw material price volatility
- Intensifying competition: Increasing competition in battery materials and semiconductor materials markets
3. Investment Strategy: What’s Next?
Short-term perspective: Monitor improvement in chemical business profitability and actual profit generation in battery materials and semiconductor businesses.
Long-term perspective: Focus on growth industries and strengthened ESG management are positive, but managing risks such as high debt ratio and intensifying competition is crucial. Hedging against exchange rate fluctuations is also essential.
4. Action Plan for Investors
Investors should make investment decisions considering both SKC’s growth potential and risks. Focus on mid-to-long-term growth potential rather than short-term profitability, and continuously monitor the company’s risk management capabilities. Careful attention should be paid to the company’s strategies for dealing with exchange rate volatility.
Why did SKC’s Q2 net profit turn positive?
SKC’s Q2 net profit turnaround is attributed to a combination of factors, including the effects of business restructuring and one-off gains.
When is SKC’s operating loss expected to be resolved?
The timing of SKC’s operating profit turnaround depends on the growth rate of its battery materials and semiconductor materials businesses and the improvement in the profitability of its chemical business. Investors should closely monitor the performance trends of these businesses.
What are the biggest risks when investing in SKC?
The biggest risks associated with investing in SKC include high debt-to-equity ratio, intensifying competition, macroeconomic uncertainty, and exchange rate volatility. Managing foreign exchange risk is particularly important due to SKC’s sensitivity to exchange rate fluctuations.
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